Second Circuit Applies “Morrison” to Reject “Listing Theory”

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On May 5, 2014, the U.S. Court of Appeals for the Second Circuit decided City of Pontiac v. UBS AG, affirming the dismissal of a securities fraud complaint against UBS and holding that the Supreme Court's decision in Morrison v. National Australia Bank precludes claims under U.S. securities laws based on transactions on foreign exchanges, even if the underlying securities are also cross-listed on a U.S. exchange. The Supreme Court held in Morrison that the private right of action under Section 10(b) of the Exchange Act does not apply extraterritorially. In the three years since, Morrison's practical application has been litigated extensively, with plaintiffs proposing various theories why Morrison permits federal securities claims based on transactions on foreign exchanges.

In City of Pontiac, the Second Circuit rejected claims brought by purchases on foreign exchanges, holding that only purchasers on U.S. exchanges (or in domestic over-the-counter transactions) can assert Section 10(b) claims. The decision confirms that foreign issuers do not subject themselves to liability under U.S. securities laws for transactions on a foreign exchange by virtue of cross-listing their securities on U.S. exchanges.

Originally published in New York Law Journal on May 23, 2014.

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